Sunday, July 23, 2017

From its inception in August 1964, Intelsat has been at the forefront of satellite communications. It has also always been an organisation governed by considerable complexity. Intelsat's original structure was as an intergovernmental organisation (IGO) with 11 participating countries. Over the decades, hundreds of earth stations were built across the planet to receive and transmit signals from dozens of Intelsat satellites in orbit. Though its charter was that of a commercial endeavour, eventually Intelsat came to be governed by 100 member countries and its decision-making process became every bit as complex as if it were an agency of the United Nations. By the turn of the millennium, the public corporatisation movement was in full swing across the telecoms sector as state-owned carriers lost their monopoly status and were forced to attract private-sector investors and compete in the market. For the space sector, privitisation and competition also became mandates, and so in 2001 Intelsat transitioned into a publicly-traded company. Since then, it has experienced a very tumultuous period of reorganisations, buyouts, mergers and public relisting. Some of these bumps-in-the-road were covered in the first part of this article.

Building and launching satellites is extremely capital intensive. Owning and operating hundreds of earth stations in over 150 countries likewise requires a high operating expense budget. After decades in operation, Intelsat is laden with $14.523 billion of debt with many long-term bond holders. On a positive note, the company's revenue breakdown is well balanced: 39% for network service; 42% for media revenue; 17% for government revenue. Customer contracts in each of these segments are predictable and stable. However, though its contracted backlog amounts to $8.5 billion (future revenue under existing contracts), the company has struggled to convince investors that its best days are still ahead. Discounting for the heavy debt load, Intelsat’s market capitalisation is only $391.2 million. There are many cloud-focused software newcomers in Silicon Valley with higher market valuations, but nowhere near the potential of impacting so many people across the globe as Intelsat.

Looking for growth

Some might see Intelsat as a stodgy veteran with a history dating back to the Apollo moon shot era, but its current crop of EPIC Next Generation satellites has accelerated the pace of satellite design innovation. The new designs offer far more capacity, flexibility and potential lifespan than has been achieved to date. As the legacy satellite fleet reaches retirement, the new birds should easily absorb all the traffic from existing contracts while offering plenty of capacity for new applications such as in-flight connectivity for aircraft, mobile backhaul and broadband connectivity in remote locations.

Meanwhile, testing last autumn revealed that the Intelsat EPICNG platform is exceeding its performance expectations. Specifically, Intelsat cited a 165% to 330% increase in spectral efficiency with ground platforms and modem technologies, and up to a 300% improvement in throughput using next generation antenna technology with its new EPICNGhigh-throughput satellite (HTS) platform.

The company said testing also confirmed that the EPICNGplatform exceeds performance expectations transmitting to and from a flat-panel antenna designed for a new class of small remotely piloted aircraft. Now that it has four EPICNG satellites in orbit and proven performance results from live testing, Intelsat's business trajectory should be reassuring to investors interested in space. But there is a new wave of hot start-ups in the space race that are gaining attention and investments.

OneWeb enters the scene

In January 2015, Richard Branson made headlines worldwide by announcing audacious plans to build, launch and operate the world's largest satellite network using Virgin Galactic’s LauncherOne space plane to put 648 small satellites into low earth orbit. OneWeb (previously WorldVu Satellite) initially announced $500 million in financial backing by the Virgin Group and Arianespace. Intelsat also announced an equity investment in the firm. The venture recruited Greg Wyler, who founded O3b Networks in 2007, as its leader. O3b Networks (the 'other 3 billion' people without Internet access). and which was recently acquired by SES, operates a constellation of 12 high throughput satellites (HTS) in a medium earth orbit (MEO) around 8,000 km from the Earth. O3b offers customers a 'fibre in the sky' solution, with each of the constellation's beams capable of delivering up to 1.6 Gbit/s of throughput at a low latency of less than 150 milliseconds, a significant improvement over geostationary connectivity. OneWeb now aims to replicate and expand on O3b's success by using hundreds of low-earth orbit (LEO) satellites instead of MEO satellites.

In June 2015, following a bidding competition, OneWeb selected Airbus Defence and Space for the construction of its broadband Internet satellites. The companies set an aggressive timeline to get its first satellites in orbit by the end of 2017 – an unprecedented pace. In December 2016, OneWeb raised $1 billion from SoftBank Group and $200 million from existing investors. Earlier this year, OneWeb announced it expected to sell all its capacity by launch time. The only announced capacity sold was for a joint Gogo and Intelsat venture. OneWeb has gone on to suggest that it might quadruple the size of its already massive satellite constellation to over 2,500 transmitting units in orbit.

Intelsat sees an opportunity, only to be disappointed

On February 28, 2017, Intelsat and OneWeb agreed to merge in a share-for-share transaction. Under the deal, SoftBank was to invest $1.7 billion in newly issued common and preferred shares of the combined company. This provided for debt exchange offers to certain existing Intelsat bondholders. The stated goal was to reduce Intelsat's debt by approximately $3.6 billion via this $1.7 billion investment. From a technology perspective, the deal sought to integrate OneWeb's LEO satellite constellation with Intelsat’s global scale, terrestrial infrastructure and GEO satellite network.

In June, after several rounds of negotiations, the merger talks collapsed. The apparent reason was that Intelsat bondholders were unsatisfied with Softbank's offer to pay only a portion of the face value of their notes. Concerning the collapsed merger, Intelsat CEO Stephen Spengler said:

- "There were many stakeholders’ interests that needed to be satisfied in this complex transaction. We are disappointed that our bondholders were unwilling to accept the terms of the exchange offers presented over the course of this process. Even without a merger of our companies, the pre-existing commercial agreement among Intelsat, OneWeb and SoftBank will continue. Under this agreement, I plan to jointly develop integrated solutions utilising both fleets and to act as a sub-distributor to SoftBank for the attractive application segments of mobility, energy, government and connected car".

On June-22nd, the FCC approved a OneWeb's request to access the U.S. satellite market. Specifically, the FCC approved OneWeb proposal to access the U.S. market using a global network of 720 low-Earth orbit satellites using the Ka (20/30 GHz) and Ku (11/14 GHz) frequency bands.

In conclusion, this week’s successful launch of Intelsat 35e is a positive development for Intelsat even though its proposed merger with OneWeb has been withdrawn. OneWeb's LEO satellites would benefit from Intelsat’s GEO capacity, and Intelsat would be rejuvenated by opportunities such as connected cars.